The latest issue of Strategy+Business, Booz Allen Hamilton’s business journal, features an article on cost cutting. Ordinarily, simple cost cutting flies in the face of real lean, but in this case, the authors’ recommendations incorporate an important lean principle, rather than defaulting to “L.A.M.E.”

The authors argue that cost-cutting through layoffs and budget cutting will ultimately fail unless the three strands of the “organization’s DNA” — information, decision rights, and motivators — are also involved. This is welcome change from the standard approach to cost-reduction of layoffs, outsourcing, and assorted (and predictable) “belt-tightening” measures.Briefly, “information” means distributing throughout the firm the necessary information about internal costs of shared services such as IT, manufacturing, or distribution:

Information is power, and with real transparency on the price of goods and services, the law of supply and demand can take hold. Companies can allocate services by forcing departments to make decisions on the basis of fixed prices for services or by open, competitive bidding between internal and external service providers.

Nothing particularly lean about this point. But it’s certainly worth making, since all-too-often people have no idea of the internal economics of the organization.

“Decision rights” is the authors’ fancy term for decision-making authority, and in this article, they raise an idea very much in keeping with lean: that this authority should be delegated to the people in the “gemba” (the Japanese term referring to the “actual place” where work is done), since not only do they have the best understanding of the processes involved, they can actually make the decisions more efficiently:

The happy medium requires senior managers to push decision rights further down the org chart while carefully monitoring the decisions their direct reports make. That expands the senior manager’s span of control and ensures a more efficient decision-making process based on local knowledge. And given good information, those decision makers become more efficient, lowering the cost of the decision-making process itself.

Finally, the authors argue that “motivators” — incentives such as promotions and salary increases — be used wisely. They contend that standard vertical promotions

accomplish little more than adding layers of management and creating a cadre of highly paid individual performers with little real managerial responsibility.

Instead, they propose the adoption of “lateral promotions,”

which confer more responsibility and higher salary without a move up the management ladder. Such moves serve not only to put the brakes on the build-up of excess management layers but also to open up the channels of communication, thanks to the increased movement of managers from department to department.

This idea, too, isn’t explicitly mentioned in the Toyota Production System. But the concept of a lateral promotion and the resulting benefit of keeping overhead to a minimum is what Matt May would call an “elegant solution,” and is very much in keeping with the spirit of lean.

So hats off to the authors: without even knowing it, they hit upon some key tenets of lean: respect for workers in the gemba by enabling them to make critical decisions, and avoiding unnecessary buildup of the turgid hierarchy that chokes so many organizations.

Dan Markovitz is president of Markovitz Consulting, a firm that radically improves operational speed and efficiency by applying lean concepts to knowledge work.
He is a faculty member at the Lean Enterprise Institute and teaches at the Stanford University Continuing Studies Program. He also lectures on A3 thinking at the Ohio State University’s Fisher School of Business.
Dan is a frequent speaker and presenter at conferences, and has consulted to organizations as diverse as Camelbak, Clif Bar, Abbott Vascular, WL Gore & Associates, Intel, the City of Menlo Park, and Memorial Sloan-Kettering Cancer Center.
His book, A Factory of One, was honored with a Shingo Research Award in 2013.
Dan has also published articles in the Harvard Business Review blog, Quality Progress, Industry Week magazine, Reliable Plant magazine, and Management Services Journal, among other magazines. All of these articles are available for download on the Resources page.
Earlier in his career, he held management positions in product marketing at Sierra Designs, Adidas, CNET and Asics Tiger, where he worked in sales, product marketing, and product development. He also has experience as an entrepreneur, having founded his own skateboarding footwear company.
Dan lived in Japan for four years and is fluent in Japanese. He holds a BA from Wesleyan University and an MBA from the Stanford University Graduate School of Business.